On Wednesday, Ethereum, the blockchain that powers the world’s second-largest cryptocurrency, Ether, completed an essential upgrade that allows holders to withdraw funds they had locked up for incentives.
The Shanghai hard fork of Ethereum, also known as “Shapella,” has been completed, allowing users who have “staked” their Ether (ETH) to protect and confirm transactions on the blockchain to withdraw. The blockchain upgrade, also known as “Shapella,” occurred at 22:27 UTC, and the network is already processing withdrawal requests.
According to beaconcha.in, within half an hour after the Shanghai upgrade was triggered, 285 withdrawals in epoch 194,408 were executed, totalling approximately 5,413 ETH ($10 million).
The Biggest Transition for Ethereum Since Its Merge Last Year
This long-awaited update is the greatest change for Ethereum since its “Merge” upgrade last year when the blockchain completely redesigned its operations. Prior to the “Merge,” Ethereum relied on “miners,” who used computers to solve complex mathematical puzzles to secure the blockchain. The network now relies on validators or Ether holders who stake or lock up their currencies to validate new transactions. These validators are compensated with specific number of new coins, allowing them to earn passive revenue without selling their currencies.
As per the Ethereum Foundation, the “Merge” enabled Ethereum to lower its energy consumption by almost 99%. However, even after the merge, there was one issue: holders who had staked their Ether could not release their currencies. Due to this issue, several Ether holders were concerned about liquidity and were hesitant to stake their currencies.
According to David Lawant, head of research at FalconX, the ratio of staked Ether to the coin’s total supply stood at roughly 15.6% as of Wednesday, far lower than that of Ethereum’s competitors such as Solana Avalanche and Polkadot, where from 40% to over 70% of the native coins are staked. Furthermore, according to Lawant, the Shanghai upgrade eliminates the problem and may attract more investors, particularly institutions, to join in staking.
Staking, however, is not without risk. Validators, for example, may be penalized and have some of their staked coins taken if they go offline or verify wrong transactions. Another common difficulty in staking is that US officials have increased their regulation of the cryptocurrency industry, including the staking services provided by some exchanges.
In fact, facing the same difficulty, crypto exchange Kraken had to settle allegations brought by the Securities and Exchange Commission by agreeing to pay more than $30 million and halt its staking program in the United States in February. The agency charged Kraken for failing to register the offer and sale of their cryptocurrency staking program.
Also Read: Crypto Investor Lost Lawsuit Against Bithumb In 2017 Data Breach Case
Short-Term Effect of Ethereum’s Shanghai Update: Is It A Success?
While the Shanghai upgrade appears to be a success so far, we can’t deny that it comes with a drawback: Unstaking Ether takes time. How exactly?
According to FalconX’s Lawant, an investor must first go through a queue if they want to withdraw all of their original coins and awards. The time it takes to process the queue is determined by how many users are attempting to withdraw their Ether at the same moment. According to Lawant, processing withdrawal requests from 10% of active validators could take more than 30 days.
However, Lawant also mentions that if an investor merely retrieves staking rewards, it will take just a few days. Considering this prominent aspect that comes along with Ethereum’s Shanghai update, it is still early to analyze the success or failure of ETH with Shanghai’s upgrade.
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